Economic Confidence Posts Fastest Drop Since 2008 Crisis

Americans’ confidence in the economy has tumbled more since the government shutdown began a week ago than in any week since the global financial crisis started in September 2008, according to Gallup‘s daily survey.

Gallup’s economic confidence index fell 12 points to -34, the polling organization said Tuesday. The 2008 drop was 15 points, to -56, in the week after Lehman Brothers filed for bankruptcy.

As the Journal reported Monday, confidence gauges by Gallup and other private organizations will take on greater importance in gauging the economy’s direction as long as most official economic data remains halted by the government shutdown. Gallup’s daily confidence gauge, which started in January 2008, is based on the public’s assessment of current economic conditions and perceptions of whether the economy is improving or worsening.

“While the economy is, in many respects, stronger than it was during the 2011 debt-ceiling crisis, the current budget debate and government shutdown clearly show that partisan brinksmanship and the uncertainty it causes on Wall Street can negatively affect consumer confidence,” Gallup’s Alyssa Brown wrote. “Thus, Congress’ inability to reach a compromise to end the government shutdown and raise the debt ceiling could negatively affect U.S. stock prices, America’s credit rating, and, ultimately, the nation’s economic recovery.”

The latest drop was faster than the weekly declines tied to other fiscal fights, including the mid-2011 debt-ceiling battle that ultimately hammered the stock market and weighed on consumers and businesses into 2012.

Gallup’s confidence index has plunged 19 points since mid-September, putting it near a two-year low. About 67% of Americans say the economy is getting worse, the highest share since December 2011. Only 28% say it’s getting better.

Drops on consumer confidence often don’t translate into drops on consumer spending. But it’s unlikely that consumers will ramp up their spending significantly while their sentiment about the economy is deteriorating.

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